Key Takeaways
- Many online retailers offer the option to pay for items in installments.
- Installments may seem like a good idea, especially when there’s 0% interest on a purchase.
- Be careful not to jump at these offers too often, otherwise your monthly payments may become overwhelming.
You’ve likely heard that if you place a frog in boiling water, it will immediately jump out. However, if you place a frog in tepid water and slowly heat the water to a boil, that poor frog will be met with a different fate. Not a pleasant thought, but it’s a good way to think about how we can get into trouble when accessing credit.
How so? Well, over the past several months, more and more online retailers have begun offering the option to pay in installments. Money.com recently came out with an article on this, and they advise that consumers proceed with caution. While it may seem like a convenient way to purchase, it’s important to stay aware, to stay out of hot water.
Let’s say you want to purchase a new robotic vacuum cleaner that’s $500, but you don’t have the money for it. You visit various online retail sites and see one that offers it and allows you to pay over the course of 12 months, at 0% interest. That works out to a little over $40 per month, which you can afford. That’s not a bad deal, at 0% interest, so you may consider it.
Now, if this is something that becomes a regular habit and you find yourself paying for everything in installments, those payments will quickly accumulate and that tepid water will go to boiling before you know it! While it can be a useful tool to use once in a while, perhaps for a larger purchase where you’ve budgeted the monthly payments, you’ll want to avoid accumulating too many of these, otherwise your cash flow for the next several months, or even years, may be thrown completely off course.
So, stay aware and make use of this service where it makes sense, but don’t overdo it. Just like any other debt, if it’s abused, it’ll become crushing. As we’ve seen with student debt over the past decade, installment payments may be a useful tool in some situations, but only when taken on with caution and careful consideration. Until next time, enjoy.
